Crawling Up the Cash Cliff? Behavioral Responses to a Disability Insurance Reform

E. Deuchert and Beatrix Eugster

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: Disability insurance systems are widely criticized for their inherent work disincentives. This paper evaluates the effects of a reform of the Swiss DI system that aims to lower pensions for a group of existing DI beneficiaries and introduces an additional cash cliff to the pension schedule. The effects on earnings and employment are zero but the disability degree increases on average by 3 percentage points and 75% of individuals manage to keep their old pension level. We partially identify income and substitution effects employing the principal stratification framework. The income effect ranges from 9 to 20 percentage pints in terms of employment, and 136 to 3,135 CHF (ca. 50% of previous earnings) in terms of earnings. The substitution effect is smaller and suggests that individuals reduce employment by a maximum of 3.7 percentage points and earnings by a maximum of 1,001 CHF (if any).

Keywords: disability insurance; work disincentives; income and substitution effects; partial benefit system (search for similar items in EconPapers)
JEL-codes: C30 I13 J01 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-age and nep-ias
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